Your annual portfolio audit: a step-by-step health check

Once a year, for about ninety minutes, look at everything. Not to trade — to check that the machine still does what you built it to do. Most portfolios go wrong slowly, through drift and accumulation, and an annual audit is the only thing that catches it before it matters.

Do it at the same time each year. The end of a financial year is convenient, because the tax questions are live anyway.

Part 1 — Take inventory (20 minutes)

Pull a full consolidated account statement. Every folio, every AMC, in one document, against your PAN. This is the only complete view that exists.

List everything else. EPF, PPF, NPS, fixed deposits, insurance policies with a savings component, property, gold, direct equity, and your spouse's holdings if you plan jointly. The portfolio is the whole balance sheet, not the part you find interesting.

Flag anything you do not recognise. A folio you forgot is exactly the one that becomes unclaimed.

Note the total. Compare with last year. Separate the growth into contributions and returns — they are different facts and conflating them flatters you in good years and depresses you in bad ones.

Part 2 — Check the allocation (15 minutes)

Compute the actual split across equity, debt, gold and international. Include EPF and PPF in debt; they are large and people habitually leave them out, which means most portfolios are considerably more conservative than their owners believe.

Compare against target. If anything is outside its band — commonly ±5 percentage points — you have a rebalancing action. If not, do nothing.

Then check the target itself is still right. It changes when your life changes, not when the market does: a new dependant, a job change, a house purchase, a shorter horizon on a goal, retirement approaching. See asset allocation.

Execute cheapest-first — redirect new SIP money to the underweight asset before selling anything. See rebalancing.

Part 3 — Review the holdings (20 minutes)

For each fund, three questions and no more:

1. Is it still doing the job I bought it for? Not "has it performed" — has it kept its mandate. Style drift, a category change, a mandate change or a manager change in a concentrated fund are real reasons to act. A bad year is not.

2. How does it compare within its own peer group? Never against a broad index or another category. Use rolling returns rather than a trailing three-year figure, which is a statement about the window as much as the fund.

3. Am I paying more than I need to? Any Regular plan holding is a standing question — see Direct vs Regular. Check the expense ratio against category peers, particularly for debt funds where it is a large share of the return.

Then count the funds. If you hold more than six, check the overlap. Most portfolios accumulate schemes the way drawers accumulate cables. See how many funds you need and cleaning up a messy portfolio.

Part 4 — Housekeeping (15 minutes)

The part everyone skips and nobody regrets doing:

• Nomination — present and current on every folio and every demat account. Update after any family change. See nominee vs joint holder.
• Bank mandate — is the account on each folio still live? A redemption to a closed account bounces.
• Email and mobile — this is what your CAS depends on. Use MF Central to update once across all fund houses.
• KYC status — Validated, not merely Registered. See KYC.
• Duplicate folios — merge them within each AMC. Free, and not a taxable event. See folio numbers.
• The map — one document listing every folio, account, policy and login, with someone who knows it exists.

Part 5 — Tax and cash flow (20 minutes)

Realised gains this year. Have you used the ₹1,25,000 annual long-term equity exemption? If not, and you have gains you were going to realise anyway, this is the cheapest time to do it.

Loss harvesting. Realised losses can be set off against gains under the applicable rules. If you have a holding you would sell anyway and it is at a loss, doing so in the same year as a gain reduces the bill.

Check the holding-period clock on anything you may sell soon. The difference between 11 and 13 months on an equity holding is 20% versus 12.5%.

Emergency fund — still three to six months of current expenses? It should grow as your spending does.

Insurance — term cover still adequate for your liabilities and dependants, health cover adequate for your city's costs.

SIP amount — raised with your income? A fixed SIP is a shrinking contribution in real terms. See inflation.

⚠️ Tax rates and limits change with the Budget. Verify current figures and take a filing position from a professional.

Part 6 — Write it down (10 minutes)

Three or four lines in a file you keep permanently:

• What you changed, and why.
• What you decided not to change, and why.
• What you expect to be true a year from now.

Read last year's entry before writing this year's. Nothing improves judgement faster than watching your own forecasts age, and nothing exposes recency bias more efficiently.

Pitfalls to avoid

• Auditing quarterly. More frequent review means more trading, more tax and no better outcome. Once a year.
• Turning the audit into a trading session. The default action is none.
• Leaving out EPF, PPF and property. They dominate most balance sheets.
• Selling last year's laggard. Frequently the best-performing decision you could avoid making.
• Skipping the housekeeping. It is where the actual failures live.
• Not recording the reasoning. Without it, next year you will not know whether you were right or lucky.
• Doing it during a market panic. Pick a fixed date. Emotion is not an input.

Key takeaway

Ninety minutes, once a year, in six parts: inventory everything (including EPF, PPF and property), check the allocation against its bands, review each fund against its own peer group on mandate rather than on a bad year, do the housekeeping — nomination, bank mandate, email, KYC, duplicate folios — settle the tax and cash-flow questions, and write down what you decided and why. The default action at every step is to do nothing; the audit exists to catch drift, stale records and gaps, not to generate trades. Read last year's note before you write this year's.